session 11 ic2011 lyon
TRANSCRIPT
A Case Study of the Forest ProductsA Case Study of the Forest Products Industry in Central America
Scott Lyon
Graduate Research Assistant
Henry Quesada
Assistant Professor
Department of Wood Science and Forest Products
Virginia Tech
June 2011
OutlineOutline
• To quantify wood products demand for Central American countries• To quantify Appalachian wood products exports to Central America
• North American Industry Classification System (NAICS)• NAICS 321: 3311 (lumber, sawmill, millwork), 3312 (veneer,
d d l d) ( ll b lengineered wood, trusses, plywood) 3219 (pallets, mobile homes)
• NAICS 337: 3371 (wood kitchen cabinet, wood household, wood institutional furniture) 3372 office furniture 3379 relatedinstitutional furniture), 3372 office furniture, 3379 related products
• Examine results to identify market opportunities in Central American countries for Appalachian wood productspp p
• To determine main strategies to export Appalachian wood products to Central America
Current CA forest situationCurrent CA forest situation
F t C6
• Forest Coverage
4
5
Costa Rica
El Salvadorha
2
3 Guatemala
Honduras
Nicaragua
Panama
million
0
1
Forest Coverage
Panama
Mairena and Hernandez (2005), Cuellar (2004), Revolorio (2004), ANAM (2006), Guevara (2004) Quesada (2008)
Demand AnalysisDemand Analysis
1 200
Production of Wood Products in 2009
8001,0001,200
m 3
400600
1000
m
0200
FAOSTAT(2010)* Consumption does not include fuel wood
Demand AnalysisDemand AnalysisCentral American Imports of NAICS 321 & 337 Globally by Country
140
160
80
100
120
llion
s
Costa Rica
Panama
El Salvador
Guatemala
40
60
80
$ Mil Guatemala
Honduras
Nicaragua
0
20
2005 2006 2007 2008
International Trade Centre (2010)
Market Opportunities
• Population Explosion
Market Opportunities
p p
– 11 million (1950) to 40 million (2008)
• Deforestation
• Illegal Logging
• Decrease of Reforestation
• Tourism
• Expansion of the Panama Canal
• Inexpensive Cost of Living• Inexpensive Cost of Living
• CAFTA
Fox (1990), Saxe (1999), World Bank (2010)
Market OpportunitiesMarket Opportunities
• Forest Products Industryy
– Limited source of local supply
– Local industry shrinking
– Lacks governmental support
– Small amount of plantations
– Climate conditions
La Nacion (2006 2007 and 2008) Costa Rica Central Bank (2008) Salamone (2000) FAO (2008) Siglo XXI (2006 2007 and 2008)La Nacion (2006, 2007 and 2008), Costa Rica Central Bank (2008), Salamone (2000), FAO (2008), Siglo XXI (2006, 2007, and 2008),Quesada (2008) , La Prensa (2006, 2007, and 2008),
Appalachian Forest Products ExportsAppalachian Forest Products Exports
2 5
Appalachian Region Exports of NIACS 321 & 337 Globally
2
2.5
ons US)
1
1.5
xports (B
illi
321
337
0.5
1
Value of Ex 337
0
2005 2006 2007 2008 2009
V
US Department of Commerce. Trade Stats Express (2010)
Update on Appalachian Wood Products p ppExports*
• Why the decrease?Why the decrease?– Unstable financial markets – Tighter creditg– Inflation– Higher freight ratesg g– Soft housing markets – Rising labor…production cost in China– Future flow of capital spending: inland China, Vietnam and Indonesia
*Virginia Forest Products Export News letter (Fall 08)
Demand AnalysisDemand Analysis
Appalachian Region Exports of NAICS 321 & 337 to
25
30
US)
pp g pCentral America
15
20
25
rts (billion U
321
5
10
15
ue of e
xpor 321
337
0
5
2005 2006 2007 2008 2009
Valu
US Department of Commerce. Trade Stats Express (2010)
Project JustificationProject Justification• “the United States forest product companies have overlooked Central America as an opportunity to expand their markets.” A. Salamone (2000)
• Appalachian region suffered from the economic crisis
• Increase product competiveness – Expanding export markets
– Improving product promotion
Wang et al. (2010)
ObjectivesObjectives• Identify main competitors of forest product companies in Central American countries.
• Investigate distribution channels of forest products.
• Investigate local production, demand, and policy of forest products in Central American countries.
• Determine drivers and barriers of the sale of Appalachian hardwood lumber and building
t i l i C t l A i t imaterials in Central American countries.
*Smith, Miller and Parhizkar (2008) Quesada (2008)
Research MethodologyResearch Methodology
• Secondary sources
• Qualitative– Government agenciesGovernment agencies
– WP importers
• Quantitative• Quantitative– WP retailers
– WP manufacturers
Qualitative ResultsQualitative Results
• How many people were interviewed?y p p– 20 companies ‐ 8 agencies
• Main competition local and SA– Low effort from USA
• Natural forest/plantations
• Lack gov supportLack gov support
• Poor wood industry
• Pine
– Importing from SA
– Furniture
• Specialized Wood Products
Interview ResultsInterview Results
• HardwoodsHardwoods
Guanacaste (Enterolobium cyclocarpum), Black Cherry (Prunus serotina), Black Walnut (Juglans nigra)
Qualitative ResultsQualitative ResultsBarrier Country(ies) Problem
Price Central America Competition with Chilean
wood products
Lumber Dimensions Costa Rica, Guatemala, El
Salvador
Use “Varas” for lumber
dimensionSalvador dimension
Wood Product Knowledge Central America Builders, Architects, and
Designers lack knowledge
wood and wood products
Wood Product Distribution Guatemala, El Salvador Lack of proper distribution
of wood products to the
country and end-users
Language Central America Most buyers only speak
SpanishSpanish
Qualitative ResultsQualitative Results
• El SalvadorEl Salvador – Highest population density
Scarce raw material source– Scarce raw material source
– Strict environmental regulations
A ibl b i hb i t i– Accessible by neighboring countries
Interview Results SummaryInterview Results Summary
• Price products competitivelyPrice products competitively
• Offer products to meet demand
i h h l l• Partner with wholesalers
• Gain relationships with potential buyers
Survey of Retailers & ManufacturersSurvey of Retailers & Manufacturers
• Questions focused on:Questions focused on:– Supplier attributes
Product attributes– Product attributes
– Retailer/manufacturer promotion strategypromotion strategy
– Supplier promotion strategy
Importing barriers– Importing barriers
– Wood products purchased
P i i– Pricing
Survey ResultsSurvey Results
• 300 firms were surveyed300 firms were surveyed and 247 valid
• Primarily small furniture• Primarily small furniture manufacturers
L th 25 l– Less than 25 employees
Survey ResultsSurvey ResultsWood Products Purchased by Respondents
3133
39
Particle boardMedium density fiberboard
Plywood
2122
2731
VeneerHardwood lumber
Oriented strand‐boardSoftwood lumber
1515
1921
Pressure treated lumberHardwood flooring
DoorsVeneer
1113
0 10 20 30 40 50
LogsCabinets
0 10 20 30 40 50
Frequency
Survey ResultsSurvey Results
Supplier Type
166Direct from manufacturer
Supplier Type
144Wholesaler
85Broker
16Government/State
0 50 100 150 200
Frequency
Survey ResultsSurvey ResultsWood/Wood Product Attributes
4.66
4.76
4.77
Delivery on time
Price
Product Quality
3 53
4.53
4.57
Color
Warranty on product
Volume Discounts
3 19
3.43
3.51
3.53
Packaging
Environmentally Certified
Kiln‐dried
Color
3.12
3.19
1 2 3 4 5
Brand
Packaging
1 2 3 4 5
Low Importance High Importance
Survey ResultsSurvey Results
4 81Price
Potential Barriers for Appalachian wood products companies
4.74
4.81
Delivery on time
Price
4.44
4.63
Quality of Appalachian products
Transportation and logistics
3.72
3.78
U.S. Governmental policies
International policies
3.53
1 2 3 4 5
Language barrier
1 2 3 4 5
Low Importance High Importance
Strategy for Appalachian CompaniesStrategy for Appalachian Companies
PlaceProduct PricingPromotion PlaceProduct Pricing
Future distribution
Higher value added
product!Competitive price!
Promotion
Patience and Commitment
channel
AssortmentQuality Local partners
product!
On timePersonal SellWebsites
Similar
WarrantyDiscounts
Communicate
ConclusionsConclusions
• Annual consumption of wood products is more ua co su pt o o ood p oducts s o ethan 4 million m3 per year
• Environmental pressures hurting local industryp g y• USA, Canada, Chile, and Brazil: high quality• Potential strategies for Appalachian wood products companies are:• To partner with local wholesalers• Start sales relationships• Start sales relationships• Offer higher value added• Keep prices similar or slighted superiorp p g p
Quesada (2008)
AcknowledgmentsAcknowledgments
• Federal‐State Marketing ImprovementFederal State Marketing Improvement Program (FSMIP)
